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Hotel cohabitation grows as brands, restaurateurs seek new opportunities

By PAUL FRUMKIN – (April 27, 2009) In their difficult journey to uncover growth opportunities in this lending-challenged marketplace, restaurateurs are finding there is still plenty of room for them at the inn.

Operators ranging from chain brands Dunkin’ Donuts and Beef ‘O’ Brady’s to fine-dining specialists Emeril Lagasse, Danny Meyer and Piero Selvaggio are targeting expansion in 2009 by partnering with hotel owners across the country.

While restaurateurs long have been mindful of the benefits of working with hoteliers—Las Vegas provides numerous examples—the scarcity of growth capital is propelling more foodservice operators into the arms of deep-pocketed hotel companies.

“This kind of partnership is a lot more prevalent than in the last couple of years,” said John Fox, senior vice president of PKF Consulting, a hotel advisory firm based in New York. “It provides a restaurant operator with an opportunity to open an outlet without putting up a lot of capital to do it.”

David Mansbach, co-president of HVS Executive Search in Mineola, N.Y., agreed, saying the typical restaurant franchisee is having trouble finding proper financing in the current market environment.

“As a result,” he said, “a lot of franchisors are considering hybrid strategies where a restaurant concept is aligned with a hotel brand.”

Mansbach said HVS is working with a number of foodservice brands, notably Beef ‘O’ Brady’s, the 263-outlet “family sports pub” concept based in Tampa, Fla. So far the chain has opened locations at the TradeWinds Island Grand Resort in St. Pete Beach, Fla., and in the Best Western Hotel and Conference Center in Brandon, Fla.

“Hotel food and beverage is a headache for [hotel] operators and in most cases is unprofitable,” Mansbach said. “Bringing in a branded foodservice operation often increases revenues by attracting customers who already know the [brand]. At the same time, it gives the restaurant operator the ability to grow from a franchise perspective when many franchisees are having trouble getting financing.”

But Mansbach also advises restaurant franchisors to be flexible when it comes to partnering with hotel owners.

“Some larger restaurant chains have very specific standards about design and square footage that make it hard for a hotel owner to work with,” he said. “That has forced us to create a toolbox of restaurant concepts that allow for more flexibility. Beef ‘O’ Brady’s can go into a hotel and convert a space for as little as $110,000, as compared to $1 million for some major dinnerhouse chains.”

Dunkin’ Donuts, which is owned by Canton, Mass.-based Dunkin’ Brands, also has several store models—including full retail shops, kiosks and self-serve hot-coffee stations—to help with its planned expansion into the hospitality sector. The brand’s first hotel outlet just opened in the Great Wolf Lodge in Concord, N.C., one of the biggest indoor water park resorts on the continent. The outlet serves Dunkin’s full menu of foods and beverages, including baked goods, oven-toasted breakfast sandwiches, and selections from its DDSmart menu.

To add to the hotel units’ flexibility, Dunkin’ officials say bakery products also can be prepared in a hotel’s kitchen that has been outfitted with a few pieces of specialized equipment.

Dunkin’ plans to grow first in larger airport hotels and resorts in the East, Midwest and Southwest. Rival Starbucks already has a number of locations open in hotels across the country.

But while chain operators are taking a more serious look at hotel partnerships, the longstanding romance between celebrity chef-restaurateurs and hoteliers continues unabated with new pairings.

In January Michelin-starred Parisian chef Guy Martin opened his first U.S. location in the Fairmont Battery Wharf in Boston.

The owner of Valentino in Santa Monica, Calif., plans to open a version of the Italian fine-dining concept in the Hotel Derek in Houston.

Danny Meyer’s Union Square Hospitality Group agreed to create a restaurant for Ian Schrager’s Gramercy Park Hotel in New York, and run all of the property’s food and beverage operations.

Celebrity chef-restaurateur Emeril Lagasse will debut Emeril’s Chop House at the Sands Casino Resort Bethlehem in Pennsylvania in May.

In addition, Piero Selvaggio, the owner of the award-winning Valentino in Santa Monica, Calif., and Las Vegas, plans to open a new generation of his Italian fine-dining concept in the Hotel Derek in Houston in September.

The partnership between Selvaggio and the Derek’s owners was arranged by Robert Nyman, founder of The Nyman Group Ltd., a foodservice and hospitality consultant based in Scottsdale, Ariz., and an early advocate of chef-hotelier pairings. But Nyman, whose company has worked with a number of hotel operators and also was instrumental in organizing several high-profile partnerships at The Venetian Resort-Hotel-Casino in Las Vegas, cautions that not all pairings are destined to hit the jackpot.

Restaurateurs Piero Selvaggio, Left, and Emeril Lagasse will introduce the latest additions to their fine-dining portfolios later this year in hotel properties.

Recently, for example, Thompson Hotels and Todd English—the Boston-based chef-restaurateur who has several high-end restaurants in hotel properties—agreed to discontinue their partnership in The Libertine in New York.

“You have to marry the [chef-restaurateur] to the property,” Nyman said. “Anybody can lease a space, but a lot of places don’t work out. If you make the wrong move, you can end up with a vacant space in the hotel.”

To facilitate what Nyman calls “a new kind of niche marketing,” his company weighs several factors, including demographics of the local market, the property’s corporate business and social catering potential, and the type of cuisine.

“You have to look at it all and then match it to an operator who can perform and bring credence to the hotel and attract a certain kind of guest,” he said.

In turn, because the development costs often are wrapped into the overall hotel project, the chef-restaurateur gets to open a restaurant in a prime location that might otherwise have been out of his financial reach, he said.

Nyman said Selvaggio’s vision for the new Valentino offered a good fit with the Derek, which previously had housed an underperforming restaurant. Selvaggio said the restaurant—to be called P.S. Valentino and VinBar—will feature several components. In the front will be a regular bar with many wines by the glass together with a raw bar that will feature small-plate selections like crudo, salumi and antipasti. The area will seat about 100.

The restaurant also will house a 90-seat dining room reflecting Selvaggio’s more contemporary interpretation of his high-end Santa Monica restaurant. According to the management contract with the property, Selvaggio will provide breakfast, lunch, dinner, private catering and room service.

In addition to defraying the costs of opening a new restaurant, Selvaggio said he likes being in a hotel for other reasons.

“You have a built-in audience,” he said. “Also, the Derek is right in the heart of one of the busiest areas in Houston.”

He said that he anticipates opening additional P.S. Valentino and VinBar concepts around the country, but each will be tweaked to the local market.